In In­dia, Growth Data Served Chi­nese-Style

A Mum­bai bro­ker­age tracks car sales and power consumption What the GDP data are say­ing “doesn’t quite add up”

Bloomberg Businessweek (Asia) - - Global Economics - −San­drine Rastello

In­dian econ­o­mists have adapted Chi­nese Premier Li Ke­qiang’s ap­proach to fig­ur­ing out eco­nomic growth, which in­volves scru­ti­niz­ing data from var­i­ous in­dus­tries in­stead of re­ly­ing on the of­fi­cial fig­ure for gross do­mes­tic prod­uct. The pic­ture painted by what the In­di­ans are call­ing the Ke­qiang in­dex is more down­beat than the of­fi­cial data from Delhi, which started us­ing a new way to cal­cu­late GDP in Jan­uary.

When he was a re­gional of­fi­cial in China, Li ex­am­ined elec­tric­ity consumption, rail cargo vol­umes, and loan dis­burse­ments to take the pulse of the econ­omy. He told U.S. am­bas­sador Clark Randt in March 2007 that such data cap­tured the re­al­ity of growth bet­ter than “man-made” GDP, ac­cord­ing to clas­si­fied doc­u­ments pub­lished on Wik­iLeaks. Mum­bai-based stock bro­ker­age Am­bit Cap­i­tal in­tro­duced a Ke­qiang-in­spired in­dex in Septem­ber, when doubts over the re­li­a­bil­ity of In­dia’s GDP fig­ures were in­creas­ing. The gov­ern­ment’s num­bers showed the coun­try’s econ­omy out­pac­ing China’s. Says Am­bit an­a­lyst Ri­tika Mankar Mukher­jee, who worked on the firm’s Ke­qiang in­dex, “The GDP data is telling you some­thing that doesn’t quite add up. Ev­ery­thing you know from cor­po­rate cap­tains, from cor­po­rate man­age­ment, from the gov­ern­ment ma­chin­ery, is telling you that the econ­omy is slow­ing down.”

Am­bit’s Ke­qiang in­dex com­bines mo­tor ve­hi­cle sales, power consumption, cap­i­tal goods im­ports, and cargo han­dled at air­ports to cap­ture pri­vate consumption and in­vest­ment de­mand. The in­dex shows the growth of mo­tor ve­hi­cle sales de­cel­er­at­ing to 0.5 per­cent last quar­ter, from 2.4 per­cent over the pre­vi­ous three months.

Al­though the gov­ern­ment re­ported that the over­all year-over-year growth rate had ac­cel­er­ated to 7.4 per­cent in the three months through Septem­ber, from 7 per­cent in the prior quar­ter, Am­bit es­ti­mates a de­cel­er­a­tion to 6 per­cent, from 6.3 per­cent. A top gov­ern­ment eco­nomic ad­viser, Arvind Subra­ma­nian, in a Dec. 18 press con­fer­ence de­fended the in­de­pen­dence of the sta­tis­tics of­fice while ac­knowl­edg­ing the un­cer­tainty econ­o­mists and in­vestors feel about the of­fi­cial mea­sure­ment of GDP.

Am­bit says the slow­down re­flects Prime Min­is­ter Naren­dra Modi’s ef­forts to break In­dia’s de­pen­dence on the old

growth model. “You’ll have smaller sub­si­dies com­ing from the cen­tral gov­ern­ment, you’ll have a smaller black econ­omy, and you’ll have crony cap­i­tal­ism cur­tailed to some ex­tent,” Mukher­jee says. “While each of th­ese re­sets will be very pos­i­tive for the coun­try from a long-term per­spec­tive, all of this in the short term is ex­tremely neg­a­tive for GDP growth.”

The bot­tom line The gov­ern­ment says In­dia’s econ­omy grew 7.4 per­cent last quar­ter, but ac­tual busi­ness ac­tiv­ity sug­gests oth­er­wise.

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